Entrepreneur

The company that I want to start involves the admin of doctors practices in central South Africa. I am not able to contribute to any finances, but am more than knowledgeable of this industry. I have a business plan but who can I approach for funding?

The company that I want to start involves the admin of doctors practices in central South Africa. I am not able to contribute to any finances, but am more than knowledgeable of this industry. I have a business plan but who can I approach for funding?

The first step is to do your research. There are a number of different funding bodies in South Africa, but they all have different mandates. You need to recognise a funder that is currently interested in the medical space. Do online searches, join networks and get out there. Meet people.

Speak to fellow entrepreneurs and people within the medical field and ask them to introduce you to players within the industry that could give you advice.

Doing market research will also assist you – who are your competitors and how are they funded? What are their pricing points? You will need a fully comprehensive business plan before you approach any funder.

However, most funders and financiers will want to see that you have either raised some capital yourself, or have some form of surety. A bank is unlikely to give you a loan with out surety, as you are far too much of a risk.

Venture capital firms and angel investors will also see you as more serious about the business idea if you have put your own money into the business as well.

You will also need to demonstrate the following when you approach a funder:

The ability to demonstrate convincingly why you can best execute on the business thesis – you need to have done their research and considered every angle.

A sound business thesis and business model with appropriate potential are paramount. Can you demonstrate low costs, high leverage, the ability to scale exponentially, and how you will tap large hungry growing markets?

There are endless possible deal-breakers, so be aware of them. IP issues can pose a big problem. Be prepared to answer these questions in your pitch.

Finally, do your research. Different funders have different focuses. If you pitch to the wrong firm, and your business does not suit their mandate, you will get a no – and a poor reputation to boot. When you go back with a good fit, you might even be ignored based on poor pitches before.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Historically speaking, entrepreneurs don’t typically have the quantity and quality of collateral needed to secure debt finance. It was this realisation that led Spartan to develop and deliver a solution that would help SMEs to grow their businesses, even though they didn’t always meet the criteria of more traditional lending institutions.

“We understand that many business owners don’t want to go the equity funding route, selling shares in their businesses in exchange for funding. Without the collateral needed to secure debt funding however, this is often the only route available to them,” says Spartan CEO, Kumaran Padayachee.

“We decided to approach things from a different angle. To service this sector, you need to be flexible. The same rules don’t apply as they do for corporates. To achieve this, we’ve assembled a team that really understands SMEs, their inner workings, the finance they need and the terms that will give them the best ROI for the funding they receive — after all, the point of funding is to help your business grow, so ultimately that’s what it needs to achieve.”

Spartan’s offers financing

At its core, Spartan finances small businesses (fast-growing companies with R5 million to R10 million annual turnovers) and medium businesses (R10 million to hundreds of million in annual turnover).

Working capital in particular is a big portion of what Spartan assists its clients in. “This is project and growth-related finance, and many of the enquiries are for working capital, for which there is a huge need in the SME landscape.”

What finance suits your business?

As a debt funder, Spartan’s team carefully evaluates what the finance will be used for, and if the return is greater than the repayments — in other words, does finance make financial sense for the business?

“There are numerous ways that finance can be applied incorrectly by SMEs,” says Kumaran. “One of the first flags we look for is debtors age. If the industry norm is payment in 30 days, but a business is typically paid by its clients in 60 or 120 days, then we know there is something wrong with their internal processes.

Either the company is too shy to be assertive with clients, or it lacks the capacity or capability to invoice clients and collect cash. Either way, the result is a shortage of cash. Business owners in this situation apply for cash in order to be able to pay the bills, when they should be reviewing their business, pulling one or two levers, and improving their cash flows.”

Growing your business with alternative funding methods

On the other hand, there are many situations where working capital and bridging finance can help a business to grow beyond its own, organic abilities.

“A customer project or contract that requires a new product line or opening a new branch are both positive, expansionary situations. The problem is that there’s a lead time gap. You need to start the project, spend cash to hire people or purchase equipment, build internal capacity, deliver on the project and then the customer only pays you. Working capital and bridging finance allow the entrepreneur to do just that, and the company grows as a result.”

Bridging finance in particular is high risk and requires a large amount of flexibility, which is why more traditional funding institutions shy away from it. Spartan on the other hand offers revolving bridging loans to customers the team has worked with. “We understand this space, and our aim is to support the entrepreneurs within it,” Kumaran concludes.

Alternative finance solutions

Spartan is an Alternative Finance company that specialises in financing Small and Mid-sized businesses by providing: Growth Finance (structured finance for expansion); Specialised Asset Finance (equipment/machinery/technology/software/office fit-outs/energy/etc.) and Working Capital Finance (bridging finance & medium term loans).

Bridging Finance

Bridging Finance is available for one to three month terms and is ideal for contract or project-based businesses. It is a solution that assists businesses with solving cash flow issues due to growth-related challenges in their business and is either for a once-off need or for revolving business use.

What do I need to do in order to get a successful crowd funding campaign?

I recently read through crowd funding and though this might be of benefit to me. What do I need to do in order to get a successful crowd funding campaign?

70 percent of most crowd funding campaigns never reach their funding laid out plan. If you only reach a portion of your desired pledge amount all donated funds are then returned to investors once your campaign date is up. Do your homework and make your campaign count.

To get the best out of your campaign, I would strongly advise you do the following:

Lay out your plan way in advance

Keep a proper and well-articulated business plan

Create a compelling story.

Use the social media and start a social media campaign

Frequently promote your fundraiser, connect and interact

Dish out rewards and incentives

To go viral, go for educative, informative and entertaining videos

Be more than unique and creative as more exposure will translate to more potential pledges

Where can I turn when banks are not helping?

Getting bank finance for my restaurant is almost impossible. How else can I access the funding that I need?

Most small businesses will experience a cash flow challenge at some point during the next 12 months and raising capital from traditional banks is becoming a real challenge. Conservative lending policies and onerous application processes mean that finance applications can take up to twelve weeks or longer.

Banks require significant securities, which many business owners are unable to meet. In short, banks are making it very tough for small businesses.

The business cash advance

For businesses that accept credit or debit cards as a form of payment for their goods and services (termed merchants), the business cash advance is now available as alternative source of funding.

In simple terms, a business cash advance offers the merchant an upfront advance to buy a discounted amount of future business turnover. For example, you may be advanced R80,000 for R100,000 of future turnover, so the fees can be easily calculated as R20,000.

The payback is an agreed percentage of your turnover, paid daily until the full amount is paid across. Payback increases and drops with your business turnover and the smaller daily payments are often easier than monthly fixed instalments.

Quicker turn-around and more accessible

Comparing it to a bank loan, the business cash advance is more accessible, operates over a shorter term and requires no personal security. It is also much faster, typically available within two weeks.

The advance amount is based on historical credit and debit card sales and pay overs are daily. The costs are fully transparent and there are no penalties for late payments or extended payback. However, accessibility, flexibility and convenience come at higher cost than traditional bank lending products.

As with any financial product, it is important that the benefits gained from using the money are more than the costs, so it is important to have a good purpose for the funding and carefully consider the available options.

Over the last three years, the business cash advance has becoming more main-stream and this funding is used by business with a relatively high card turnover, such as restaurants, retailers, beauty salons, supermarkets, convenience stores etc.

What to use the advance for

The advance is typically used for a business opportunity, such as expansion, new stock, new equipment, marketing etc. Alternatively, it also offers through a difficult trading period or to cover an unexpected expense such as equipment failure when the money is needed quickly.

Small businesses are a vital part of the South African economy, contributing over 65% of South Africa’s employment and over 50% of GDP – accessing funding is imperative for these businesses to survive and grow.